Is crypto ‘haram’? Why are Pakistanis suddenly selling off their digital currency?

The Shehbaz-Sharif government is actively seeking to regulate and expand Pakistan's cryptocurrency sector. But there's a hurdle the nation could face in its attempts to project itself as a crypto-friendly destination. And the reason is not market volatility or government regulation, but fatwa.

Mufti Muhammad Taqi Usmani, Pakistan's leading cleric, has issued a "fatwa" against trading in cryptocurrencies, declaring it "haram" (forbidden). Usmani, one of the nation's most influential Islamic scholars, said that cryptocurrency trading, including Bitcoin, Ethereum and stablecoins, is “haram" under Islamic law.

The fatwa he issued was made public by Darul Uloom Karachi, one of Pakistan's most respected Sunni Islamic seminaries. Though a fatwa is a religious opinion and carries no legal force, many religious investors may exit the market, given Usmani's influence, experts note.

However, this has reportedly triggered a sell-off in the country and sparked a debate among Muslim investors worldwide.

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We take a look.

Why has the cleric declared crypto 'haram'?

Under the fatwa, cryptocurrencies do not meet the Islamic definition of wealth or property. It is surrounded by several uncertainties, including making purchases and sales and elements similar to gambling, which makes it impermissible under Sharia.

Islamic finance bans transactions that involve excessive uncertainty, gambling and assets with less recognised value. The cleric argues that most cryptocurrencies fall into the same category of digital assets and fail these tests.

Therefore, the fatwa covers not only cryptocurrencies like Bitcoin and Ethereum but also blockchain-based tokens and stablecoins, such as USDT.

This comes at a time when the government is positioning itself as a crypto-friendly destination by establishing the Pakistan Crypto Council and creating the Pakistan Virtual Assets Regulatory Authority (PVARA).

The government has also pursued blockchain initiatives and policy measures designed to attract investment into the sector.

So, is crypto now illegal in Pakistan?

A fatwa is a religious opinion or ruling, not a legal order or government notification. Hence, the fatwa itself does not automatically prohibit crypto trading under Pakistani law.

The legal framework adopted by Islamabad regarding cryptocurrencies remains separate from the religious perspective.

However, due to Usmani’s influence, someone who carries considerable weight, analysts think many religious investors in Pakistan may begin to view cryptocurrency trading and investing differently and voluntarily exit the market.

Some reports suggest that several Pakistanis are suddenly selling off their digital currency.

What is a fatwa? Can this influence other nations?

A fatwa is a religious opinion or interpretive ruling issued by a qualified Islamic scholar on matters concerning Islamic law (Sharia).

Contrary to common assumptions, a fatwa does not constitute a law and is generally not legally enforceable. However, when issued by a scholar of significant religious authority, it can exert considerable influence and shape believers' actions and decisions.

News18 reported, citing analysts, that the fatwa could influence investor sentiment in Muslim-majority nations, especially if other religious institutions declare similar rulings.

However, it remains to be seen whether this results in a change in policy in Pakistan.

With inputs from agencies